Comcast Corporation (NASDAQ:CMCSA) is facing multiple tough headwinds, and the company’s third-quarter results will probably come in below expectations when they are reported on Oct. 26, causing Comcast stock to drop.
Investors should sell any CMCSA stock they own before those results come in.
The biggest headwind Comcast is facing is cord cutting, a phenomenon which appears to be accelerating fairly rapidly. Last month, a Comcast executive said that it expects to lose 100,000-150,000 subscribers during the third quarter.
The executive blamed competition and Hurricane Harvey for the downbeat projection. But, with cord cutting “exploding” as many consumers cast aside their expensive TV subscriptions and rely on Netflix, Inc. (NASDAQ:NFLX), and/or “skinny bundles,” competition is probably the main culprit.
According to research firm eMarketer, the cord cutting trend is growing “much faster” than previously expected, Variety reported. In 2017, the number of U.S. cord cutters will reach 22 million, representing as 33% jump versus 2016, Variety quoted the firm as saying.
Documents filed by AT&T Inc. (NYSE:T) earlier this month suggest that Comcast’s subscriber numbers could be even uglier than the cable giant projected in September. Specifically, AT&T’s cable business shed nearly 400,000 subscribers last quarter, “more than even the most pessimistic forecasts,” according to BGR.
Other Problems for CMCSA Stock
Cord cutting is the biggest headwind for Comcast, but it’s not the only one. In the second quarter, Comcast’s film and NBC Universal businesses performed very well, enabling its Q2 results to exceed the consensus outlook and lifting CMCSA stock.
However, the performance probably wont be duplicated. Worldwide revenue for the company’s top movie of last quarter, “Despicable Me 3,” came in about 20% below the level of the previous quarter’s top hit, “The Fate of the Furious.”
Meanwhile, the NBC broadcast network faced its own problems last quarter, including weak mid-morning ratings sparked by Megyn Kelly’s adjustment issues and declining ratings for NFL games. A look at the ratings of NBC’s primetime lineup as of September, meanwhile, suggests that the network’s ratings fell significantly year-over-year.
Despite the accelerating cord cutting trend and the weaker performances of NBC Universal’s’s movie and film units, analysts’ consensus earnings per share estimate for Comcast has increased over the last 90 days, to 50 cents from 48 cents.
Furthermore, in the third quarter of 2016, Comcast’s EPS was 46 cents, so to meet the consensus estimate, the company’s EPS will have to rise by 4 cents compared with last year. That does not seem very likely to occur, given the headwinds that it is facing.
The Q3 consensus revenue estimate, which predicts that the company’s EPS will drop by 1.3% is more realistic, but the consensus revenue estimate for the fourth quarter bakes in a 4.6% year-over-year gain. Comcast’s topline guidance will probably come in significantly below that level.
And as I’ve warned previously, owners of Comcast stock who plan to hold onto the shares should realize that even the company’s Internet Service Provider faces significant looming threats. Alphabet recently provided a reminder of such threats.
Specifically, the tech giant “quietly upgraded its internet balloon initiative from a research lab ‘project’ to an official corporation,” Business Insider reported. Known as Project Loon, the initiative involves using “solar-powered balloons that beam internet access down to earth,” the website explained. Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) decision to incorporate Project Loon suggests that the project is going pretty well.
And Alphabet’s recent deployment of Loon balloons to provide internet access to Puerto Rico in the wake of Hurricane Maria indicates that Loon is actually functional.
In the short-term, cord cutting is a major headwind for Comcast, while the performance of its movie and broadcast businesses have weakened. Over the longer term, Comcast’s internet business is at risk. Given these headwinds, investors should distance themselves from CMCSA stock.
As of this writing, Larry Ramer did not own shares in any of the companies mentioned.
